For Pakistan, 2002 was, perhaps, the most eventful
year after 1971. The early part of 2002 was overshadowed by the fallout
from the International Coalition's retaliatory strikes on Afghanistan in
the wake the events of September 11, 2001. All this impacted Pakistan's
economy because Persian Gulf region was declared a war zone. Foreign
airlines and shipping companies suspended their services to Pakistan,
oil prices shot up raising energy costs, cargo insurance charges went up
sky-high, and export orders for billions of dollars were cancelled
abruptly forcing many export-related industries to either drastically
cut their operations or simply pack up.

It is remarkable that in spite of these shocks,
Pakistan survived a collapse, though later developments on the political
front greatly helped Pakistan. The country managed to dissociate itself
very credibly from the former Afghan regime in return for which it was
rewarded by international financial institutions and G-7 governments
through re-scheduling of loans thereby reducing its external debt
repayment burden. Uncertainties created by rash US action against
foreigners whom it suspects of helping terrorists obliged expatriate
Pakistanis to shift their savings to Pakistan that helped build the
highest ever foreign exchange reserves. This huge inflow also reversed
the one-sided trend of Rupee-US Dollar parity, and commenced the de-Dollarization
of the economy.

While bank deposits continued to rise fuelled by
inward foreign remittances, investor confidence was not restored, as
reflected by a marked drop in borrowing by businesses. Stringent fiscal
reforms undertaken earlier had a deep impact on business psyche. To
allay this situation, the government undertook a number of steps in the
2002-03 Federal Budget and throughout the rest of the year, but with
little effect because another reform measure viz. the Code of Corporate
Governance forced businesses to step back to take stock of their
positions. Finally, the uncertainties created by the impending general
elections and prospects of reverting back to a democratic set up (in the
past characterized by sudden changes in fiscal policies) again dampened
investor confidence.

In spite of the current weak investment climate,
institutional reforms, especially those undertaken by the Central Bank
sought to create a market-based economy, though too much too soon.
Monetary and Credit policies, though criticized by small savers for
rapid cuts in the Discount Rate, forced lowering of lending rates and
made lending easier for banks. Firms that overcame their fears to take
advantage of the relaxed conditions showed signs of improvement. Players
in banking, petroleum distribution, auto assembly and pharmaceutical
manufacturing sectors are likely to declare substantially high profits
for 2002 but in the unfriendly international business environment that
is likely persists for long, the key to staging a full economic recovery
will lie in encouraging domestic demand - a reality that has dawned only
belatedly on the government, banks and businesses.

The stumbling block in the drive for boosting
domestic demand will, however, be lack of household savings and rising
poverty - factors that went unnoticed by the government earlier in its
single-minded drive for cutting fiscal deficit. This is where, in spite
of its visible recovery (thanks to 9/11), Pakistan falls in line with
the rest of the world that is beleaguered by poverty-fuelled drop in
demand. On the international scene, in 2002, regrettably, failures
vastly outnumbered achievements. The continuing recession, which
observers term "double-dip recession", is a manifestation
thereof. Bad governance of the 1990s shrouded by the smokescreen created
for "freeing" the markets caused this seemingly unmanageable
chaos. But failures can be the pillars of success, provided we learn
from them, and avoid making the mistakes we made in the past.

The most painful legacy of the recent past is the
failure of the institution of the state, almost everywhere, in
delivering a more equitable and stable socio-political environment, in
spite of tall but hollow claims of politicians, bureaucrats and business
magnets. Disillusionment with democracy is reaching astonishing
proportions. People everywhere see a direct relationship between
democracy and bad governance because lawmakers have failed consistently
to resolve people's problems. Their disillusionment with democracy was
amply demonstrated by the lack of voter turnout at the recent general
elections in Austria, Denmark, France, Germany, The Netherlands, United
States and Venezuela. In Pakistan too they got a raw deal, particularly
during the last decade of democracy, which was proved beyond doubt by
the low turnout at the recent general elections.

People now want governments that treat economic
stability as their first priority. They worry less about the
institutional character of the government raising the spectre that
economic stress may encourage tolerance for totalitarian rule, because,
contrary to Western perception, in many developing countries military
rule enjoyed majority public support, as it did in Pakistan, at least at
the outset. This development is a disaster of incalculable proportions
for the future of democracy for which the incompetence and greed of the
politicians is to blame. This regression is noticeable in countries
where contempt for political parties is widespread because of the
large-scale corruption they indulged in eventually leading to pervasive
economic chaos and poverty. Recent history of Latin American, African
and Asian states confirms this fact.

In future, support for democracy will be proportional
to improvement in macroeconomic indicators. Yet, going by the recent
record of politicians everywhere, democracy's chances are worryingly low
because people have little trust left in them. Statecraft (Western
democracies included) now resembles a decadent art. Sustained economic
decline of Western Europe, and now in US and Japan has shaken peoples'
confidence in democracy. In the developing countries, politicians
continue to treat their constituencies as their ancestral property
turning them into private battlegrounds. Their erstwhile cohorts in the
bureaucracy lend a helping hand in weakening institutional arrangements
to enrich themselves at the cost of their people.

Now democracy will succeed only in countries where
elections bring to power new groups that eject corrupt politicians.
However, rise of the new power groups, which largely consist of
inexperienced legislators and religious extremists (as in Turkey,
Pakistan, India and the US where diehard followers of the Evangelical
church are in power) doesn't hold out much promise because they seem
bent upon usurping the liberty of the individual. It is time for the
political columnists-turned-reformists to stop calling for giving these
misfits a "fair" chance. The columnist-politician clique has
had the charade going for too long. This clique, that also supports the
concepts of market-based economy, privatisation and globalisation, is
unwittingly siding with forces of tyranny because practice of these
concepts has, so far, to led economic distress, not made amends for past
mismanagement.

The drive for freeing economies without building
adequate safeguards through institutional arrangements to confine the
new found freedom within socially acceptable parameters could have led
to no better end. In hindsight, Western defence of the freedom of choice
appears to have been a ploy for advancing the cause of unbridled
capitalism, not freedom of choice. Freedom is a bounty, which must be
enjoyed with utmost care - something mankind has rarely done. Can we
overlook the history of the past fifty years? Things worsened after
colonies in Asia and Africa became free from the yoke of imperialism
because the style of governance reverted back to feudalism shabbily
disguised in the cloak of democracy. This is not a reflection on the
nations themselves because, given the choice, they could do far better.
It is a reflection on the leadership that leaves much to be desired in
the context of good governance.

The Western media vocally promoted market
liberalization, and relaxation of restrictions on movement of capital.
Readers and viewers placed their faith in the wisdom of the press.
Sadly, they were taken for a ride that ended in a crash. Most
"liberated" economies now look like a wasteland. That the
assessment of evolving world economic order was not well conceived is
proved by the fact that even in US - the bastion of modern capitalism -
large scale business bankruptcies and sustained dismal economic
performance is dragging the rest of the world into a deeper recession.
Throughout the 1990s, commentators pleaded for a corporate takeover of
the world by diluting the role of the state. Was that the right line?
Now the same crystal ball gazers see a long recession, which, according
to them, may be the worst in recent history. Why couldn't they see it
coming earlier when in late 1980s capitalism was going virtually
berserk? In hindsight, West's defence of Regonomics and Thatcherism was
not just over exuberant; it was un-warranted.

It has yet to be fully appreciated that this is the
age of specialisation, of producing quality at the lowest price. It
calls for reaching an agreement on who should produce what, based on a
fair assessment of comparative advantage, and then sticking to that
agreement. Admittedly, this means abandoning some industries but
expanding others to create compensating opportunities. These are hard
choices that entail pain in the short-term but well thought out choices
and realistic time frames for phasing out marginally profitable
industries should create an environment for eventually trading in
cost-effective lots, ensure fairer prices for raw materials, and
capacity utilization by domestic industries. In the long run, it should
help cut waste, and conserve domestic resources to banish unemployment,
illiteracy, malnutrition, environmental pollution, child labour and bad
labour practices, etc.

The rational strategy would have been to press home
the case for a jointly planned rationalization of national industrial
bases using the yardstick of comparative advantage. Admittedly, it is a
painful process because it calls for accepting failure, flogging a large
part of traditional industries at seemingly throwaway prices, and
re-training large chunks of national workforces, but one that can
eventually stabilize national economies, and the world economic system.
It would have been a lot saner to embark on this process consciously and
systematically rather than accept unplanned closure of traditional
industries with unmanageable social consequences. Supporters of
market-based economies didn't realize that such consequences are
generating fallout that is shaking the foundations of the concept.
Scenes routinely witnessed at G-7, G-8, EU and WTO conferences are
reminders of this stark reality.

Falling economic growth, and rising unemployment,
poverty, and terrorism speak volumes about the style of governance. It
helped institutionalise inefficiency and corruption leading to economic
chaos and pervasive lack of respect for the law. It led to degradation
of values - a slow process of death of the society as a whole. Yet, we
punish only those who fall within the limited legal definition of
murderers, not the apathetic politician-bureaucrat-businessman mafia.
This is largely due to the gullibility of the media - the conscience of
the masses - to the cold, often wholly faulty logic advanced by this
mafia to justify criminal transfer of advantage from the masses to the
state and the business sector who continue to misuse national resources,
especially cheap public savings. For the first time even in US, the lack
of social responsibility of businesses is the subject of Presidential
speeches.

Worried by mounting criticism, market regulators are
now coming out with yet another maze of long, winding regulatory
frameworks more as a bulwark to protect themselves than to arrest the
rising trend of greed and corruption among the market players. A case in
point is the Code of Corporate Governance, which places excessive
confidence in the supervisory capabilities of non-executive Directors
(in Pakistan often the wives and children of major shareholders), and
wherein a company CEO is to be held responsible for virtually everything
that goes on in the company. In a complex corporate set-up, it will be a
nigh impossible task for any CEO to take charge of everything that goes
on, no matter what his or her mental and physical capabilities. Unless
future CEOs happen to be Durga Matas with ten hands, they will fail to
fulfil the requirements of the code, which only confirms the suspicion
that this much-praised code is more a mechanism to pass on the buck
rather than credibly address the problem.

CEOs don't take every decision; they provide
guidelines and coordinate inter-action among organizational units, and
through that, strive to achieve the organization's objectives. Were they
to sit in judgment on every issue, their organizations will stagnate and
eventually die because one-man shows stifle initiative and growth rather
than produce future managers to sustain organizations in the long-term.
Inefficiency and corruption can be checked only if all decision-makers
are endowed with the qualities of integrity and sincerity of purpose,
and have requisite professional skills. In spite of the so-called
intellectual "progress" of yester years, the harsh but
undeniable reality is that such codes can't change the wayward behaviour
of individuals coming out of educational institutions that no longer
place teaching ethics at the high pedestal that it deserves.

Ethics, especially the critically important values of
integrity and sense of social responsibility cannot be drilled into
their heads at a late stage, more so through laws imposed by governments
that remain suspect in the eyes of people for a variety of conduct
un-becoming, of which the hallmark is disregard for maintaining equity
in human inter-action. The exercise to instil integrity in human conduct
has to be undertaken much earlier when individuals are at schools where
the lasting contours of their personalities are formed. The basic code
in urgent need of re-defining is the curricula taught at schools. This
applies to almost every country, especially the US that produces the
largest number of MBAs - managers of the world's largest economy, which
influences all other economies because the US accounts for nearly one
third of world trade.

Faulty education systems, that downgrade principles
and values in favour of expediency, produce dangerously devious minds.
2002 will be remembered for years to come for unmasking the largest-ever
number of crooks, fraudsters and criminals running some of the world's
biggest corporations the failure of which had devastating consequences
for their shareholders, employees and stock markets everywhere. The
development played havoc with investor confidence at a time when it
needed rapid revival to stem the recession that has engulfed the world.
Once again one is forced to ask whether the law needs to be changed to
re-define killers; should it only include individuals who kill using a
physical weapon or should it also include those whose deliberate
dishonest actions lead to widespread misery and consequent slow deaths
of millions from poverty, deprivation and starvation?

Intellectual dishonesty is at the core of the
disaster. In many businesses, product pricing, advertising and sales
promotion visibly lacks integrity. It was used more as a gimmick to
misinform, dodge and fleece customers rather than perform the ethical
function of helping them make the right choices. Expediency often took
the better of the senses of both businesses and their promotional
agencies. Only in countries where consumer associations are strong have
consumers been compensated for losses. In countries like Pakistan,
consumers remain entirely at the mercy of the manufacturers. Retailers
are oblivious to their critical role as the entities ultimately advising
the consumer and delivering value in exchange for the price received.
They have turned into cold-blooded agents of manufacturers ignoring
their responsibility in the business transaction. Meeting promises of
quality and weight, deadlines, and terms of business contracts is a
rarity. Few bother about the rapid decline of the value system.

Press and electronic media are often used to spread
misinformation rather than true information to help readers and viewers
make correct situation assessments and exercise appropriate choices
based thereon. Misreporting of company performance, their future
prospects, and the prospects of their share prices has became a
specialist skill. It may surprise many that in 2002 in the US alone over
1,000 corporations revised downwards their reported profits for the past
three years. Information about many unethical research methodologies,
defective products, fraudulent business practices, regulatory
violations, tax evasion, and similar crimes became known only due to the
courageous efforts of the whistle blowers, not the investigative media
reporting.

Another important question begging an answer is
"where is technological progress leading us to?" Technology
holds out immense prospects of improving human life on this planet and,
admittedly, there have been numerous advances in technology used by all
types of enterprises. But a spectacular failure of these achievements
has been the progressive elimination of the human factor. Should this be
the direction of technological development on a planet that witnesses a
devastating rise in human population everyday? Isn't something
fundamentally wrong with the way the scientists, inventors and engineers
perceive the future needs of mankind? If technology is to replace human
beings in every sphere, what precisely is going to be their occupation
on this planet? Is it not fuelling unemployment? More importantly, who
will eventually be in control of this planet, machines or the human
beings?

Technology has created more problems than just
dehumanising enterprise. Environmental pollution with its disastrous
effects is the other. On the one hand it creates pollution that is
causing an ever-increasing variety of killer diseases, and on the other,
technology breakdowns result in unmanageable consequences not only for
those using it but also for the millions that are affected by its
after-effects on environment. Take, for instance, just four out of the
many technology-based disasters; release of radio activity in the
aftermath of accidents at nuclear plants, massive oil spillages as a
consequence of huge oil tankers breaking apart on high seas,
introduction of inadequately tested medicines, and shocking transport
accidents in air, on high seas and over land because of instrument
failure. The worst is the race for beating adversaries in acquiring
technology giving rise to yet another evil - industrial piracy and
criminal intrusions into privacy.

In the name of right sizing of the organizations,
thousands were laid off because "the skill they possessed had
become redundant". No serious efforts were made to re-train such
employees and make them useful for their organizations. None of these
organizations accepted their failure in rendering these employees
dispensable although the employees had, in most cases, given the best
years of their lives to their organizations. If they were not trained
and developed to meet the challenges of the future, the better part of
the blame quite justifiably lies with the organizations. Yet they all
went scot-free. In the drive for making enterprises cost-effective,
thoughtless right sizing was resorted to, which added significantly to
the already expanding problem of skilled unemployment and frightening
levels of poverty.

Today, the biggest problem confronting most
governments is poverty - the mother of all evils. They lost the
opportunity to stem the rising tied of poverty because the distinction
between the role of the state and a profit-seeking corporation was
blurred. Where to begin from the process of restitution is the challenge
that now haunts governments everywhere. Not many seem capable of facing
up to it because they all seem to over-simplify issues; they only
scratch the surface rather than go to the root of the problem. This
style of governance does not augur too well for the future of
statecraft, which will always hold the key to salvation whether
economies become market-based or remain as they are. After the recent
massive corporate failures, corporatising the state no longer seems a
workable idea.

BANKRUPTCIES IN
US

Conseco Inc.

Insurance

UAL Corp.

Airline

Worldcom

Telecom

Adelphia

Telecom

Kmart

Retailing

Global Crossing

Transport

Enron

Power

Pacific Gas & Elec

Power

BIG EUROPEAN
FAILURES

Companies

Sector

Babcock Borsig

Engineering

Kirch

Media

Muhl

Construction

Fairchild Dornier

Aerospace

Philip Holzman

Construction

Herlitz

Paper

Sachsening

Auto spares

Cargolifter

Zeppelins

FAULTY PHARMA RESEARCH

US Food and Drug Administration recently faulted the
pharmaceutical companies on the way they make pills. The hardest hit was
Schering-Plough that was taken to task by FDA for the offence. Eli
Lilly, Abbot and Wyeth were issued warnings. The problem is
over-exuberance of the manufacturers. MIT's G.K. Raju thinks that
because companies are in a rush to get their products to the market,
they often tend to use the laboratory scale methods to expand the
results for industrial production, which is the heart of the problem

METEORIC RISE OF POVERTY

According to World Development Report-02 sustainable
development should "enhance human well-being through time",
which means helping people to improve not just their "net
worth" but their "sense of self-worth". It defines
society's assets to include more than land, labour and capital. Property
rights, transparency, trust and above all, the rule of law count as
much. While policy benefits are dispersed, its cost is concentrated. So
the benefits are captured by only a few. The majority just grows poorer.

LIMITING THE HUMAN FACTOR

The nerds in the typical IT firm's support department
are proliferating too fast. According to IBM, growing complexity means
the number of IT workers required globally to support a billion people
and millions of firms connected via the internet - possible within the
next decade - may be over 200 million (two thirds of America's
population). But fear not. Help is on the way. It comes in the form of
N1, a supper-operating system unveiled by Sun Microsystems. N1 will
ensure running large corporate data centres yet eliminate the work
currently done by "armies" of system administrators.